Quote from: miscreanity on August 18, 2011, 04:36:44 PM

In the current system, banks provide credit and came to treat debt as money, but they do not increase the monetary base. Ironically, if the banks did print their own money, the ongoing financial crisis probably wouldn't be as pronounced although other issues would arise.

I would agree that speculation on expanding economic development can be categorized as demand. The question is whether we're talking about a hypothetical system such as one predominantly based on Alt/Bitcoin or the current system.

In the current system, speculation builds on itself because there are no consequences for being wrong if the speculator is a major player or otherwise in a position to be bailed out. In a Bitcoin-based system, there is no way to manipulate the monetary base, so a speculator who is wrong will have to take his losses.

I think this post better move to economics subcategory

In my understanding, only commercial banks treat debt as money, the central bank has to produce money to facilitate the trading

In old time, it was gold production, and today printing paper money/digital money with the amount matching the GDP growth. Like gold belongs to gold miner, the printed money also belongs to central bank. Although the central bank create money supply to buy the government bond, but without having the ownership of those printed money, they can not do this through an accountable way

Of course they do not need these money for private usage, but they are issentially like a bitcoin miner who provide the market with liquidity. They are more flexible than a bitcoin miner since the amount of money they can provide at any time (to keep price stable) will not be limited by difficulty/electricity/hashing power etc... So their effort is moved from creating money and more focused on watching the money flow in the whole society

Anyway, the FED just feels like "the biggest end customer" in today's financial system. If he spend, everyone start to make money, if he save, everyone feel the pain. If he spend too fast(easing), that will cause inflation; if he spend too slow(tightening), there will be deflation and recession; it's really an art to be a FED chairman

In the bitcoin world, same thing happens, but we all know this "biggest end customer" only have limited amount of bitcoin (he is not very rich), so we might not want to do big business with him Grin